Funding Options for SMEs Post-Brexit

It's widely accepted that Brexit will have a major impact on the British economy but the slow progress of negotiations and lack of clarity is leading to growing frustrations across the business community.

By Edward Thorne, UK Managing Director, Dun & Bradstreet

According to the Federation of Small Businesses, the European Investment Fund has provided almost £500 million per year to help British SMEs. As UK-based small businesses are likely to lose access to funding and trading terms extended to European Union member-states, they will need to look at alternative sources of funding to sustain future growth. With small and medium enterprises totalling 99.3% of all private sector businesses, the loss of capital could stymie business growth and impact the overall strength of the British economy.

SMEs can act now to assess how dependent they are on EU funds or loan guarantees and gauge the impact on their business. Meeting with current financiers to discuss near-and long-term funding could help identify and manage vulnerability, and get a clearer picture of what Brexit could mean for future financing.

Liquidity concerns don't begin and end with any single business. Suppliers and customers could be adversely affected, as well. Having a full picture of the supply chain and customers base is vital. Finding out more about where partners are with their own access to capital and what steps can be taken to minimise disruption could also be helpful. For example, additional trade credit could be extended to reliable customers to help quell immediate fears.

Monitoring economic and political developments and anticipating the potential impact of Brexit gives small businesses time to consider additional funding sources. It's worth reviewing several such options now.

Chancellor of the Exchequer Philip Hammond recently launched a consultation, "Financing growth in innovative firms," in order to solicit input from stakeholders on how to administer a proposed National Investment Fund intended to make innovative companies more competitive and offer a potential buffer should EU investments evaporate.

A number of city councils and organisations also offer loans or grants to support businesses through schemes such as the Regional Growth Fund. There are also private-public funding efforts available, such as the £250m Midlands Engine Investment Fund just launched by the British Business Bank designed to accelerate growth and provide support for the region's smaller businesses.

Increasing access to alternative finance providers was a key objective of the Small and Medium Business (Finance Platforms) Regulations 2015. Since last year, banks are now mandated to refer any SMEs they reject for finance to a designated online finance provider. These providers can help match businesses with alternative sources of finance to help them grow, and use developing technologies to provide quicker access to cash.

The current uncertain climate should be a motivator for business owners to review how their organisation may be perceived by lenders. Business data is driving the decision-making process at many financial institutions. The information available from sources such as Companies House and business credit bureaus is often used to set loan terms, and poor scores can jeopardise funding applications and limit entrepreneurial growth.

Similarly, organisations charged with awarding grant money may be reluctant to work with a company that has accrued substantial debts. A business's financial profile is often used to assess credit worthiness and suitability s for l funding, and will be critical to secure alternative sources of finance in preparation for Brexit.

No one is certain how British businesses will fare as the UK negotiates financial agreements with the EU. What is apparent - and worthy of further investigation - is that both the public and private sectors offer opportunities to access alternative sources of capital. The key, of course, is getting ahead of the game and acting now to protect against any changes to the lending environment to ensure SMEs can continue to flourish and drive their businesses forward, regardless of the uncertainties.